A review of lending worth tens of millions of pounds was launched by RBS yesterday after it admitted failures in the administration of a taxpayer-backed small business funding scheme.
The Edinburgh-headquartered bank has loaned more than £900 million to 9,000 firms since the Enterprise Finance Guarantee (EFG) was introduced in 2009.
The scheme, managed by the Government-established British Business Bank (BBB), is designed to provide working capital to firms that have a viable business plan but lack the security required to raise a loan through conventional means.
Following concerns, RBS entered into discussions with BBB and it was agreed that a sample of loan files from the scheme would be examined to see if mis-selling had taken place.
The issue centres on a 75% guarantee given by the Government to lenders willing to issue funds under the scheme.
Some RBS customers were incorrectly told the guarantee was for their benefit rather than the bank’s, and did not realise they remained liable for 100% of the loan in the event of a default.
RBS yesterday said its internal review had “identified a number of instances where we have not properly explained to customers how borrower and guarantor liabilities work under the EFG scheme”, and the findings had prompted a wider internal investigation.
Around 1,800 small companies which received cash through the scheme have defaulted, but The Courier understands that around 320 of that figure may have been mis-sold their loan.
They will be returned to the position of the expected 25% liability on their loan, but further financial compensation from RBS is not on the table at this time.
Business Secretary Vince Cable said he was “extremely disappointed” that the bank, which has been rocked by a series of scandals since the financial crisis of 2008, had misused the EFG scheme.
“I met senior management from RBS to discuss findings of a review by RBS which I instigated in August last year through the new British Business Bank which I set up in 2012,” Mr Cable said. “I have asked that RBS puts the situation right as quickly as possible, so that neither RBS customers nor taxpayers are adversely impacted.
“The EFG is a valuable scheme which has been a lifeline for the 23,000 small businesses that have benefited from EFG loans which they would not have got from the banks otherwise.”
Shadow business secretary Chuka Umunna called for a wider probe into EFG to establish how widespread mis-selling had been in relation to the scheme, and said the episode raised questions about what ministers had done to resolve the problem.
Despite the problems, RBS yesterday said it remained committed to the EFG scheme, of which it is the leading UK lender.
Alison Rose, CEO of commercial and private banking, said RBS had fallen short.
“EFG is a hugely important scheme that has helped many businesses continue to trade today,” she said.
“This is why it is so important that our staff adhere to the highest standards to ensure that customers fully understand the features of the product. I am not satisfied that we have met those standards in all cases.
“Following discussions with the BBB, we have taken action to put this right. We have now made sure that EFG loans will always be given appropriately.
“We are implementing a thorough and proactive review of affected, and potentially affected, customers.
“Any customers that have been affected will be contacted directly by the bank to ensure they are put back in the position they believed they would have been in.”
The Financial Conduct Authority yesterday said it had been appraised of the situation by RBS, but its regulatory remit does not extend to commercial lending.